Understanding the Price Dynamics in the Jiangsu SO2 Emissions Trading Program in China: A Multiple Periods Analysis

Because emissions permits can be considered to be a pseudo-commodity, the permit price in the emissions trading markets has already attracted great interest from the economic literature. This research took the Jiangsu sulfur dioxide (SO₂) emissions trading program in China as a case study to examine the price dynamics over the next 10 years (2011–2020) based on Jiangsu’s new SO₂ emissions trading policy design. An adaptive agent-based simulation model was developed to estimate the price dynamics as well as the impact of energy price, policy design, and new environmental regulation on the permit price. The results showed that the equilibrium price of the Jiangsu SO₂ emissions trading market is approximately 4.20 CNY/kg, and the permit price will fluctuate around this price if the other conditions are not changed. If the coal price increases during 2011–2016, the permit price will decline to 2.79 CNY/kg by 2020 under China’s current coal–electricity price mechanism. In addition, the banking mechanism will smooth the price fluctuations and the average permit price will be generally higher when banking is not allowed. Finally, the stricter environmental regulation will reduce the market supply of permits and will raise the permit price. According to China’s potential new SO₂ discharge standard, the permit price will jump to 11 CNY/kg. The quantification of the permit price dynamics can help power plants to make decisions on emissions trading.